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Developments in the Defined Contribution Market

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2 December 2011
Alexander Camargo

New Funds and New Investment Vehicles in the US Market

Abstract

The defined contribution market has made a comeback. After a trillion-dollar decline in assets in 2008, defined contribution assets reached record levels in 2010. With the fastest growth rates of any retirement plans, DC plans are gaining market share of US retirement assets.

In a new report, Developments in the Defined Contribution Market: New Funds and New Investment Vehicles in the US Market, Celent examines the retirement landscape in the United States. The defined contribution market can be sliced and diced in various ways: it can be broken down by plan type (401ks, Keoghs, etc.), by fund type (hybrid, target risk, target date), and also by investment vehicle (separate accounts, mutual funds, collective investment trusts). This report looks at the defined contribution (DC) market using each of these perspectives, highlighting major changes.

Historically, mutual funds have been the investment vehicle of choice in the defined contribution market, with over 50% of assets held in mutual funds. However, over the past decade, new investment vehicles have continued to gain exposure in the DC market. These vehicles include: separate accounts, collective investment trusts, variable annuities, and company stock. This report outlines the evolution and growth of these investment vehicles.

“The defined contribution market is undergoing several developments. One of the most interesting is the growth of collective investment trusts,” says Alexander Camargo, Celent Analyst and author of the report. “Even though these vehicles have been around for a long time, it’s as though plan sponsors are discovering some of their regulatory and cost benefits for the first time.”

This report begins with an overview of the US retirement market, focusing on the growth of the defined contribution market over the past five years. The following section describes the evolution of this market, focusing on types of plans, growth rates, drivers of adoption, and significant market players. A breakdown of the defined contribution market by investment vehicle follows. This section also highlights growth projections for each vehicle, outlining major drivers that will affect growth. Following this section is a look at the target date fund market, and how demand for innovation has led to developments in this market. The last section describes some of the major developments that Celent expects to see going forward.

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